Wednesday, 10 January 2018

BJ Toto - Recent Sell Down Provides Opportunity To Gain Exposure In Vietnam Lottery Boom

Publish date: 

1. Introduction

Not too long ago, BJ Toto released a poor set of results. 

This caused share price to decline to all time low of RM2.80.

However, upon closer examination, the group's poor result was mostly due to unusually high tax rate of 43%.

The company explained that it was due to additional GST adjustments amounted to RM15.6 mil.

By adding back the RM15.6 mil, January 2017 quarter's net profit should be RM64 mil, more or less the same as previous quarter.

In short, the sell down is not justified. 

2. Kicking Ass In Vietnam

What I mentioned above was not sufficient to motivate me to buy into BJ Toto. Fair enough, the market has unfairly penalised it by pushing share price down from RM3.20 to RM2.80. But that represents upside of only RM0.40, or 14%. Not very exciting.

What got me excited was how well its Vietnam venture is doing.

Just to recap, in January 2016, Berjaya Corp announced that the Vietnamese government has granted approval for its lottery business in Vietnam.

The lottery business was officially kicked off in July 2016.

How has it been doing ? 

Doing well. VERY VERY WELL.

As mentioned above, by December 2016, Vietlott was chalking up daily sales of VND14.2 billion. How much was that in Ringgit ? That was RM2.7 mil per day. Multiplied by 365, that translates into annual sales of RM990 mil.

Was that a lot ? Yes. 

Last year, BJ Toto chalked up total sale of RM5.5 billion. Within 5 months after launch, Vietlott has already grown to 18% of BJ Toto's revenue.

And this is just the beginning. I don't have the exact numbers of outlets / terminals already set up. But the entire program is supposed to be rolled out over 5 years (now only 0.5 years) to ultimately reach 10,000 terminals. Based on straight line extrapolation, annual sales could reach betwen RM5 billion to RM10 billion per annum. 

Vietnam's GDP per capita is still very low. Even 5 years later, it will still have plenty of room to grow. Even if the number of terminals are capped at 10,000, we can expect lottery sales per terminal to continue to grow over many, many years.

The potential is mind boggling.

3. Which One Is Better Proxy ?

In the above section, I discussed how well Vietlott has been doing. The question now is which counter should I buy ? BJ Corp has 40% effective interest in Vietlott, BJ Toto has only 10%.

After giving due consideration, I decided to put my money in BJ Toto and BJ Corp on 3 : 1 ratio.

The reason I bought more BJ Toto is because I don't really like BJ Corp's high borrowings and lack of direction. 

(Back in early 2016, I bought BJ Corp at about 40 sen+. But later sold it at a small loss after losing patience with it. I have also conducted a detailed study of the group and found that it has many weaknesses that I don't like. Neverthelss, at current price of 35 sen, the stock does looked interesting, especially now that Vietlott has been doing so well. However, as usual, patience is required for this group) 

4. Concluding Remarks

I will have to admit that BJ Toto is not really the kind of stock that people buy into during the existing bull market. It is not really that sexy. 

However, after the recent strong Bursa performance, I am turning a bit cautious (not to say that I am bearish). I look for stocks that has not gone up much and has reasonable potential.

I am hoping of buying into BJ Toto such that when next quarter result comes out and if thing is back to normal, it can go back up to RM3.20. 

By 2018, with a bit of luck, hopefully share price can go up by another 20 sen (to RM3.40) if Vietlott continues to do well and more and more investors find out about that. 

BJ Toto declared 19 sen dividend last financial year. I am hoping maybe it can declare at least 16 sen going forward. Coupled with share price of RM3.40, I am hoping I can end 2018 with total value of of RM3.56.

Based on original cost of RM2.80, a gain of 27%.

Good enough for a low maintenance old man like me.

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